Multibagger defence stock hits lower circuit, still overbought on charts; what's next?

Shares of defence major Zen Technologies saw profit booking on Friday, hitting lower circuit of 5% in the afternoon session. The correction in the multibagger defence stock today reduced one month gains to 53.50% from 60% in the previous session. The stock, which more than doubled in the last three months on Thursday, was showing returns of 76% in the current session. 

Meanwhile, Zen Technologies stock slipped 5% to Rs 2083.85 on Friday against the previous close of Rs 2193.50 on BSE. Market cap of the firm slipped to Rs 18,815 crore on BSE.

The multibagger defence stock has gained 402% in two years and risen 980% in three years. Amid the current rally, the relative strength index (RSI) of Zen Technologies stands at 79.8, signaling it is overbought on charts.

Ravi Singh, Senior Vice President of Retail Research at Religare Broking said, "The investors are advised to adopt buy on dip strategy with the favourable entry range that should be aligned with breakout level of Rs 1950-2000 for an upside potential of Rs 2300 to 2500 in upcoming sessions. To protect against any downfall, a stop loss should be placed below Rs 1800."

Mandar Bhojane, Equity Research Analyst, Choice Broking said, "Technically, the stock remains in a strong uptrend, and any dips could be seen as buying opportunities on support. However, the Relative Strength Index (RSI) is at 80.16, indicating that the stock is in the overbought zone. While the trend remains intact, a short-term consolidation or minor pullback cannot be ruled out. Traders holding positions from lower levels can consider booking partial profits and continue to hold the rest with a trailing stop-loss at Rs 2000. On the upside, the next key resistance levels are placed at Rs 2400 and Rs 2600."

Zen Technologies posted a 189% rise in net profit to Rs 101 crore in Q4 against Rs 34.94 crore in the previous year. Revenue from operations rose 129.8% to Rs 324.97 crore compared to Rs 141.39 crore a year earlier.

Earnings before interest, tax, depreciation, and amortization (EBITDA) rose to Rs 162.74 crore in Q4 against Rs 53.08 crore last year, leading to EBITDA margins of 50.08%, compared to 37.54% in the prior year.

Zen Technologies Limited designs, develops, and manufactures defence training systems, based on sensors and simulators technology. The company’s category of products includes land-based military training simulators, driving simulators, live range equipment and anti-drone systems. The company also has a training platform in Hyderabad, with an integration of its complete product range. Its Anti-Drone System (ZADS) system works on drone detection, classification and tracking on passive surveillance, camera sensors and neutralization of threat by jamming drone communication.